You are on page 1of 47

European Commission Enterprise DirectorateGeneral

Final Report

February 2002

Centre for

Benchmarking of Business Incubators

This study has been carried out by the Centre for Strategy & Evaluation Services (CSES) for the European Commission’s Enterprise DG. We would like to thank the Commission, in particular Mr Christer Hammarlund, for the support provided throughout the project. We would also like to thank business incubator managers who were nominated by Member States to provide advice and assistance, and our two special advisers, for their input. A list of the experts and advisers is provided in Section 1 of the report. The data and analysis presented in this report are the responsibility of CSES under a contract with the European Commission. Although the work has been conducted under the guidance of Commission officials and the Member State experts, the European Commission is not necessarily in agreement with the analysis presented and the views expressed do not necessarily represent the official position of the European Commission. _____________________________________________________________________ Centre for Strategy & Evaluation Services (CSES) P O Box 159 Sevenoaks Kent TN14 5RJ United Kingdom Tel/fax: +44 1959 525-122 E-mail: jmalan@cses.co.uk European Commission Enterprise Directorate General 200 Rue de la Loi B-1049 Brussels Belgium Tel: +32 2 295-0364 Fax: +32 2 295 9784 E-mail: Christer.Hammarlund@cec.eu.int

_____________________________________________________________________

Centre for

-

Strategy & Evaluation Services

Benchmarking of Business Incubators

SECTION EXECUTIVE SUMMARY PART ONE - BENCHMARKING FRAMEWORK 1. INTRODUCTION
1.1 1.2 Overview Structure of the Report

PAGE i

1
1 2

2.

BACKGROUND AND POLICY CONTEXT
2.1 Role of Business Incubators 2.2 Incubator Definitions and Typology 2.3 Geographical Scope and Scale of Incubator Activities 2.4 European Policy Context 2.5 Review of Previous Research on Incubators

3
3 5 10 17 18

3.

BENCHMARKING FRAMEWORK
3.1 Overall Approach 3.2 Business Incubator Model (Step 1) 3.3 Best Practice Issues (Step 2) 3.4 Performance Drivers (Step 3) 3.5 Business Incubator Data (Step 4)

25
25 25 27 29 31

PART TWO – BENCHMARKING & BEST PRACTICE ANALYSIS 4. SETTING UP AND OPERATING BUSINESS INCUBATORS
4.1 Business Incubator Stakeholders 4.2 Location and Premises 4.3 Incubator Role and Objectives 4.4 Business Incubator Clients 4.5 Financing of Start Up and Operating Costs

34
34 35 37 39 41

5.

KEY BUSINESS INCUBATOR FUNCTIONS
5.1 Incubator Space 5.2 Business Support Services 5.3 Promotion and Defining Target Markets 5.4 Admission Criteria, Client Management and Exit Rules 5.5 Personnel and Business Incubator Management

49
49 50 57 58 63

Centre for

-

Strategy & Evaluation Services

Benchmarking of Business Incubators

6.

EVALUATION OF INCUBATOR SERVICES AND IMPACTS
6.1 Overall Approach 6.2 Contribution of Incubators to Business Performance 6.3 Gross Job and Wealth Creation Effects 6.4 Net Job and Wealth Creation Effects 6.5 Other Incubator Impacts 6.6 Comparison Between EU and US Incubator Performance

68
68 71 75 82 84

7.

CONCLUSIONS AND RECOMMENDATIONS
7.1 Key Conclusions – Benchmarking Analysis 7.2 Best Practice and Policy Recommendations

87
87 93

APPENDICES A. B. C. D.
1. 2. 3. 4. 5. 6. 7. 8 9. 10. 11. 12. 13.

INCUBATOR MANAGER QUESTIONNAIRE COMPANY QUESTIONNAIRE BUSINESS INCUBATOR DEFINITIONS CASE STUDY REPORTS (BOUND SEPARATELY)
Overview Austria Belgium Denmark Finland France Germany Ireland Italy Portugal Spain Sweden United Kingdom

102 112 116 118
118 119 123 128 136 150 156 160 167 173 177 180 185

Centre for

-

Strategy & Evaluation Services

These are subdivided into ‘headline’ and ‘operational’ indicators. This model is based on the literature review. producing guidance on achieving benchmarked performance and examples of best practice. Step 2 – Best Practice Issues: The model defines a number of ‘key best practice issues’ that provide the framework required to define benchmarking indicators.Benchmarking of Business Incubators 1. The work carried out by CSES involved two main phases: Phase 1 focused on preparing an analytical framework and involved a review of previous research and other literature on business incubator activities. a survey of incubator companies (71 firms completed questionnaires) and obtained survey data from the USA on incubator operations there. The objectives of the project were. Provide assistance to business incubators that participate in the exercise to implement operational improvements by. in summary. In addition to the interview programme. During Phase 2 the framework was tested and further developed through a series of interviews with incubator managers. Overview The project ‘Benchmarking of Business Incubators’ was undertaken for the European Commission by the Centre for Strategy & Evaluation Services (CSES). Benchmarking Framework Full details of the benchmarking framework are set out in the report. stakeholders and client companies from the EU Member States. and by two external experts. Support this with ‘operational’ benchmarks’ that define the means of achieve the ‘headline’ benchmarking performance. the model highlights the ‘key performance drivers’ that influence the extent to which incubators achieve best practice benchmarks. Step 3 – Performance Drivers: In addition. we carried out a wider survey of business incubators in EU Member States (eliciting a response from 77 incubators). amongst other things. The CSES team was guided throughout the project by a ‘Managers Group’ consisting of Chief Executives of business incubators from EU Member States. To summarise the key points: Step 1 – Model: A generic business incubator model was developed setting out basic functions and operating procedures. inputs by the Managers Group and CSES’s fieldwork. These drivers fall under three headings Centre for i Strategy & Evaluation Services . 2. to: Define ‘headline’ benchmarks for business incubators relating to their performance with regard to management and promotion.

It follows that incubators should be promoted by an inclusive partnership of public and private sector stakeholders.2. incubator functions. Best Practice – this report identifies best practices in business incubation and suggests key actions to replicate them at an operational level. Overall conclusions of the benchmarking project are summarised below under three headings – setting up and operating business incubators. Some 40. Key Conclusions There are a number of key messages from this benchmarking study: Outcomes – business incubators in the EU – which now number around 900 – make a significant contribution to job and wealth creation. Recommendations are set out in Section 4 and a summary of the key statistical benchmarks is provided at the end of the summary.2. from different types of incubator models. Examples of where this approach is being adopted are given in the report.1.000 new (net) jobs are generated each year by incubators. There are key lessons to be learnt from experience. A key lesson from this project is that incubators should not be stand-alone entities but rather work along side other organisations and schemes to promote broader strategies. Business incubators should be designed to support and be part of a broader strategic framework – either territorially orientated or focused on particular policy priorities (e. or a combination of these factors. Added Value – the business incubation process adds value by accelerating the start-up of new businesses and helping to maximise their growth potential in a way that is more difficult for alternative SME support structures to achieve.1 Setting Up and Operating Incubators 3. The survey data was used to determine where incubators stand in relation to the various benchmark indicators. Actions are needed at an EU level to put a framework in place to support the process of developing and sharing best practice. and evaluating incubator services and impacts. 3. companies. 3.1. The research suggests that incubators are typically promoted by a wide range of organisations from the public and private sectors including local authorities. Business incubator partnership structures will reflect overall regional. and Centre for ii Strategy & Evaluation Services . and from practices in different EU countries and the USA. 3.g. universities. Step 5 – Best Practice Guidance: Based on the earlier steps and analysis. development of clusters).Benchmarking of Business Incubators Step 4 – Business Incubator Data: Two surveys were carried out by CSES: the first focused on incubators themselves while the second involved obtaining feedback from client companies. the final section of this report then suggests key actions that should be taken in setting up and operating business incubators. technology and business support strategies.

expected levels of demand. Public authorities have an important catalytic and leadership function.800 square meters of space for tenants. a detailed operating framework (infrastructure and services). and other factors. Whilst many incubators are able to recoup a significant proportion of these costs (averaging around 40%) from tenants. The provision of physical space is central to the incubator model. Standard good practices now exist with regard to the most appropriate configuration of incubator space. There are a number of different set up funding models but the evidence from this project is that public support for the establishment of incubators in Europe will remain critical for the foreseeable future.Benchmarking of Business Incubators financial institutions. According to the research. The value added of incubator operations lies increasingly in the type and quality of business support services provided to clients and developing this aspect of European incubator operations should be a key priority in the future. incubator operating costs average around €500. The analysis contained in this report suggests that public funding accounts for a high proportion of the set up costs of most incubators (which average around €4 million) and for around 37% of operating revenue. the highest proportion of cost relating to staff (41%) followed by client services (24%).3 Business Incubator Functions 3. 3. the element of public subsidy remains high in most cases. 3. there are different ways in which incubators cover their operating costs and whilst many incubators rely on public subsidies. some three-quarters (77%) of European incubators operate on a not-for-profit basis.2. the target market. 3. The research suggests that European incubators typically have around 5. and other costs such as utilities (13%). Another key lesson from the research is the need to operate at no more than around 85% occupancy levels. Likewise. how the incubator will be managed. there is now a more or less standard model for the optimal configuration of physical space and that it is the quality and range of business support services that should be the focus of best practice development. maintenance of buildings and equipment (22%).3.5. There is a widespread acceptance that although central to the incubator model. there is a strong argument in favour of dependence on this source of revenue funding being minimised. During the development phase. At present. This research suggests that there are four key areas in this Centre for iii Strategy & Evaluation Services .2. 3.4.1. it is important for the market to be tested and a business plan to be devised that can provide a framework for incubator operations. The incubator business plan should set out the rationale for the project and how it addresses market failure (if this is the rationale). estimated capital investment and running costs/sources of funds.3. and can provide crucial pump-priming investment during the development phase of incubators. sufficient to accommodate some 18 firms at any one time in a variety of units. 3.2.00 per annum. Smaller incubator space than this is likely to make it more difficult to generate economies of scale.3.2.

adopting exit criteria that ensure a turnover of client companies is desirable even if the turnover of firms makes revenue levels from rental income and other services less certain. it is essential that there is a clearly defined target market and that this is reflected in the admission criteria. A focus of this type enables incubator managers to develop specialised knowledge and skills. and facilitates the clustering of client companies (e. Experience suggests that the more successful incubators are the ones that have a particular technology and business focus. Graduated rentals rising to above market rates after a given period of time is another method that a number of incubators (24% of the sample) adopt to encourage firms to move on. 3. With regard to incubator operating procedures. companies move on to new locations because they need more space to grow. highly specialised incubators – e. At the same time. Moreover.3. limit the length of time companies can remain as tenants (typically to around 3 to 5 years). there is a danger that the selective approach to admitting projects will be abandoned in favour of a ‘first-come-first-served’ approach. Graduate retention is important in ensuring that incubator operations have long-term benefits to the areas where they are located. The research suggests that relatively few incubators (around 4%) provide business support services on an entirely free basis to clients.Benchmarking of Business Incubators respect: entrepreneur training (often part of ‘pre-incubation’).3. The provision of after-care services to ‘graduates’ is therefore critical to ensuring sustainable incubator impacts. 3. The report provides an analysis of the types of admission criteria adopted. Likewise. and technology support.3. The research suggests that most incubators do.3.g. biotechnology incubators – may have longer tenancy periods for their clients reflecting the nature of business activities. in many cases. 3.g.5. in fact. enabling business relationships to develop between incubator tenants). experience suggests that many firms are at the most vulnerable stage in their development when they leave an incubator. Similarly. financial support (in some cases from incubator seed/venture capital funds but usually through links with external providers). this consideration needs to be balanced against the importance of maintaining selective admission criteria. As noted earlier.4. Centre for iv Strategy & Evaluation Services . Similar considerations apply to the question of exit rules. business advice. After care and networking with firms that have left an incubator should be regarded as just as important as providing services to incubator tenants. Moreover. 3.7. pricing levels tend to reflect an element of subsidy (35% of incubators stated that pricing was below market levels). Business incubators should charge clients for the support services they provide but the level at which prices are pitched should be designed to minimise the risk of ‘crowding out’ private sector providers.6.3. 3. However. The destination of incubator ‘graduates’ should be monitored with companies being encouraged to remain in the local area. Whilst achieving high occupancy rates is important to generate income. achieving high occupancy levels quickly is desirable from the point of view of income generation but can have disadvantages in terms of being able to react flexibly to the changing requirements of tenants.3.

The type of activities client companies are pursuing.3. business incubator Centre for v Strategy & Evaluation Services . An arguably better method of classification is to differentiate between the specialisms of incubators as reflected in the activities of their tenant companies.500 (€. is the key factor (rather than physical features or operating modality) that should be used to differentiate one type of incubator from another. Whilst this provides good insights to the ‘input’ and ‘process’ aspects of their operations. A key message from this project is the need to judge incubator performance in terms of the long-term impacts achieved rather than short-term measures such as occupancy rates or failure rates.4000 net). 3.1. Likewise. An approach of this sort makes sense given the fact that different types of incubators are increasingly offering very similar ‘core’ services.Benchmarking of Business Incubators 3. a distinction should be made between gross and net impacts achieved by business incubators. i.4.4.000 net jobs per annum. client management and networking with ‘graduates’. the ratio would appear to be 1: 3. the impact they have on businesses.3. these results are being achieved at an average gross cost per job to public authorities of around €4. it does not provide the basis for an in-depth understanding of ‘outputs’ and impacts.1 makes clear. and adoption of a business-like approach to running incubators and monitoring clients.4. wider economic development and other priorities.9. The quality of the management team. 3.e.2. in particular the technology/knowledge intensity of these activities. i. In the past. there is a need to obtain feedback directly from client companies and greater priority should be given to this than has hitherto been the case. range of services.8. Moreover. New economy incubators have an even higher ratio than this. is crucial to performance and best practices in this field are becoming standardised. incubator models have tended to be classified according to the nature of inputs (public.e. 3. private. European incubators typically have around 5 to 6 staff (half of whom are managers) with senior personnel coming from a business background. A key efficiency indicator is the ratio between staff and companies. Feedback from companies is also important from a more practical point of view. 3.4 Evaluating Business Incubator Services and Impacts 3. If indirect effects are taken into account – the higher spending in local economies brought about by additional direct employment and new jobs created in local supply chains – then this figure increases to around 40.000 gross new jobs per annum. As Point 3. Based on this research. In assessing the impact of incubators. European incubators are generating around 30.2 (tenants) or 1:5. The performance of business incubators should be judged primarily in terms of the results achieved. An important lesson to be learnt from this project is that incubator impacts can only be properly assessed by obtaining information from companies.4. Previous research has tended to rely on survey data from incubator managers alone.0 (tenants plus other clients). etc) and processes (type of incubator space. etc). The report contains an assessment of incubator impacts suggesting that in terms of employment effects (a key indicator for public authorities and a proxy measure for a range of other impacts).3.

linked to this. 3. for example. their European counterparts have probably developed more expertise in fields such as entrepreneur training. 3. then the net value added of the incubator’s operations is questionable. Although the evidence is far from conclusive one way or another. Similarly. virtual networking.4. By the same token. target markets. although market conditions are currently unfavourable. and. and integrating incubator functions into broader strategies. Although ‘new economy’ incubators are currently out of favour. Across Europe. regional and national circumstances and priorities. 3. there are other essentially practical reasons for undertaking a more probing assessment of incubator impacts: investigating the extent of displacement is important in helping to ensure that an incubator’s target market is appropriately defined .4.7. Section 6 of this report highlighted differences between the way in which business incubators operate in Europe and the USA.4. an understanding of additionality involves obtaining client feedback on the role played by an incubator in the development of their business and this information should help to ensure that the right services are being provided. the ‘traditional’ model has enduring strengths and these are examined in the report. this analysis suggests that whilst US incubators. ‘new economy’ incubators have demonstrated a potentially profitability model that is attractive to the private sector. As Section 2 of this report highlighted.if support is being given to projects that compete directly with existing local businesses.4. secondly. they have demonstrated that the real value added of the business incubation approach lies in the sharing of know-how rather than physical aspects. there are also significant differences relating to stakeholder objectives. The relatively low cost per job (see Point 3. This research suggests that there are three main lessons to be learnt from the experience of ‘new economy’ incubators: firstly. institutional. there are a large number of different incubator definitions and models across Europe. Although they share basic features in common. and it is important that these local factors are taken into account in defining best practice. there are a variety of different business incubator models and precise modalities should reflect local. However. the research confirms significant differences between the way in which European and US incubators operate and therefore scope for a sharing of experience and know-how. Likewise. and the precise configuration of incubator facilities and services. although only limited comparisons are possible.5.4. demonstrate particular strengths with regard to company financing and some management functions.Benchmarking of Business Incubators impacts are likely to be considerably under-estimated if only direct (gross) effects are taken into account. ‘new economy’ incubators have shown that the business incubation process can operate successfully on a virtual basis.1) and other less easily quantifiable benefits demonstrated by business incubators covered by this research suggest that they are a very effective Centre for vi Strategy & Evaluation Services . These differences are partly a reflection of location-specific factors of a cultural. 3. Overall.6. and policy nature. this report suggests that business incubators are a very cost-effective instrument for the promotion of public policy objectives. there are many lessons to be learnt that are relevant to the more ‘traditional’ model (and visa-versa).4.

Placing particular emphasis on developing high quality business support services (entrepreneur training.g. We then consider wider policy initiatives that might be taken at a European level to promote best practice in business incubation. 4.Benchmarking of Business Incubators method of promoting knowledge intensive. Clearly defining the target market and adopting admission criteria that focus on projects where an incubator can genuinely add value. A summary of ‘headline’ and ‘operational’ indicators that have been used in this project. Direct comparisons with other types of schemes are difficult to make. Developing ‘virtual’ incubation services so that more businesses can benefit and through after-care/graduate networking. particular attention should be given to: Ensuring that incubator operations are integrated into wider regional (technology) development strategies and supported by broadly based partnerships. we have also provided best practice examples covering aspects of business incubator operations where quantified benchmarks are not appropriate. together with benchmark values. Ensuring that incubators are managed in a business-like manner with the aim of maximising value for money.1 Business incubators should be encouraged to benchmark themselves against best practice standards and to take the steps required to achieve them. it is important to stress that the benchmarks will not apply to every type of incubator. 4. business advice. ensuring that job and wealth creation effects are retained in local economies. is provided at the end of the report. the provision of advisory services) and/or are closely linked to them.1 Promoting Best Practice in Business Incubation at an Operational Level 4. new technology-based activities. Best Practice and Policy Recommendations In this section we outline key recommendations. one reason being that incubators usually combine many features of other schemes (e. The report contains a range of benchmarks relating to setting up and operating business incubators. We recommend that in seeking to achieve best practice at an operational level. Also. vii Centre for Strategy & Evaluation Services . etc). In the report itself. technology support. These points and others are elaborated on below. In some cases. financing. these can be quantified and a summary of the key benchmarks is provided at the end of this summary. starting with promoting best practice at an operational level.1.

1. It will clearly be Centre for viii Strategy & Evaluation Services .level professional standard relating to overall incubator management. 4.4. providing financial advice to companies) are of course areas where such standards exist.1. As the report has made clear. Business incubators should be encouraged to periodically undertake impacts assessments. However. This report has identified four key incubator service areas and. to developing EU. Two areas – entrepreneur training and financing -might be prioritised since these appear to be where there is the least knowhow. we have highlighted a number of examples of best practice. At present there is no recognised professional qualification or standard in this field although specific incubator management functions (e.1. not least of all to demonstrate the benefits of public support. however. even where this is so.g.3. financing. We recommend that incubators themselves. There is also a lot of work that has been undertaken by national associations. Benchmarking and best practice sharing should focus on the four key incubator service areas identified in this report – entrepreneur training. priority should be given to developing a set of common definitions and quality standards for European business incubators. As argued earlier. There is a need to ‘professionalise’ the occupation of business incubator management. personnel management. 4. and the national associations (if possible.2 EU Level Actions to Promote Best Practice in Business Incubation 4. we recommend. However. The report has identified a number of ways in which incubators can improve income generation and hence their overall financial sustainability. the quality of the management team is a key to successful incubator activities. (b) a develop a common methodology based on best practice. supported by the Commission) should (a) identify best practice in this field. This report provides a starting point in defining key best practice benchmarks.1.5. based on this. 4. 4. practices are now more or less standardised with regard to the provision of incubator space and the challenge facing incubators is more to focus on developing first-class business support services. There are a number of reasons why incubators should undertake impact assessments. A further priority should be for business incubators reduce their dependence on public subsidies. Consideration might be given. and (c) agree on one or more pilot exercises to determine the best way of proceeding. be to agree on an EU-level definition of a business incubator and. there are considerable methodological and practical data collection complications. including a virtual dimension for firms not located in incubators.2. As a starting point to any EU-level initiative.Benchmarking of Business Incubators 4. business support. and technology support. A starting point for any initiative to set up a European business incubator association should. in each case. there is a strong argument for encouraging individual incubators to reduce their dependence on public funding so that available resources can be spread more widely and used to promote new initiatives.1. to devise EU-level quality standards.2. In this report we have argued that public subsidies for business incubators have an important role and that in many cases such support is accepted as a cost-effective way of helping to achieve policy objectives.

One way of encouraging incubators across Europe to develop best practice would be to establish a financial instrument that invests via incubators that demonstrate effective operations in their client firms.2.2. Any initiative of this sort should also be linked to the further development of the Commission’s database of European incubators. and Regional Policy). A number of different Commission DGs have an interest – either explicit or implicit – in the operation of business incubators (apart from Enterprise DG. The European Commission should review the role of different DirectorateGenerals and schemes to ensure that a co-ordinated approach is being adopted to the promotion of business incubators. We recommend that the survey of European business incubators undertaken as part of this project should be repeated periodically.5.2.3. we suggest that the Commission should continue to convene periodic meetings of the group to review progress. An organisation that already has a pan-European role is the European Business Network (EBN) representing BICs and consideration might be given to developing a wider business incubator association based on EBN.Benchmarking of Business Incubators important to take this material into account. To ensure that the various types of support the Commission can provide to Centre for ix Strategy & Evaluation Services . we recommend that the Managers Group that has been established as part of this project should continue to meet on an occasional basis to help implement the recommendations made in this report. 4. This could be linked to existing venture capital funds or possibly opened up to wider markets. At present. The starting point might be to encourage national business incubator associations to adopt a common methodology based on a proforma that contains a number of common questions. The Managers Group has played a very positive role in this project and. assuming that there is a follow-up to implement the report’s recommendations. the Managers Group might help to decide which aspects of business incubator operations should be examined in more detail by working groups (e.g. Such a structure is almost certainly needed to secure the engagement of Europe’s incubator community as a whole in any initiatives to take this project forwards. 4. Research. this includes DGs Employment.4. 4. there are a number of national associations in Europe which have occasional ad hoc contacts with one another but an absence of an over-arching structure at an EU level. Rather than relying on a ‘snap-shot’ as in this project.2. company financing).2. In particular. ECFIN. preferably on an annual basis. Consideration might also be given to expanding the Managers Group to include representatives from Central and Eastern European candidate countries and to giving it a role with regard to establishing a European association. a longitudinal approach would make it possible to benchmark dynamically and to identify trends in incubator management and performance. 4. Which ever approach is adopted it will be important to involve national associations closely in the discussions. Consideration should be given to establishing a European Business Incubator Association as an overall framework for taking actions forwards. entrepreneur training. In addition.

6.000 * see note on setting up and operating incubators Centre for x Strategy & Evaluation Services . It should be stressed that given the diversity of incubator operations and objectives.000m² 1-120 firms Range 9% –100% 6 months .1:20 50% Benchmark 85% 25% NA NA €4.000 to €1.a.000 to €8. Cost per job (gross) Average €3.000 m² 20 – 30 * Benchmark 85% 3 years 2 managers min 1:10.a.Benchmarking of Business Incubators incubators is co-ordinated.a. 4. (2001) 6.400 Range €1.2.000 – 4.a.600 Benchmark NA NA 25% 2.2 jobs per firm 41 jobs €4. Similarly. The values are based on an analysis of the CSES survey data and discussions with incubator managers on best practice standards. This report has not been able to make detailed comparisons between business incubator operations in Europe and the USA but it is nevertheless clear that there is much to be potentially learnt from sharing experience and know-how. 1 to 120 7 to 197 €124 to €29. and that incubators themselves promote broader EU policy objectives.000 p. it is not possible to quantify benchmarks for many aspects of incubator operations.3 managers 1: 14 39% Average 85% 20% p. Summary of Key Benchmarks The table on the next page provides a summary of key averages.000 m² 27 firms Average 85% 35 months 2. steps should be taken to improve the sharing of best practice between European and North American business incubators. Through this project.no max 1 – 9 managers 1:2 – 1:64 5% – 80% Range 65% – 100% 5% to 100% p. 37% 3.7 million €480. we recommend that there should be discussions between DGs to develop a Commission-wide strategy and action plan for the promotion business incubators in Europe.8 m 0% to 100% 90m² . In addition to the purely EU dimension.5 to €22 m €50. 5.41. Summary of Key Incubator Performance Statistics and Suggested Benchmarks Setting Up and Operating Average capital investment cost Average operating costs % of revenue from public subsidies Incubator space Number of incubator tenants Incubator Functions Incubator occupancy rates Length of tenancy Number of management staff Ratio of incubator staff: tenants % of managers’ time advising clients Evaluating Services and Impacts Survival rates of tenant firms Average growth in client turnover Average jobs per tenant company New graduate jobs per incubator p. the benchmarks will not apply universally. ranges and benchmarks that can be quantified. good contacts have been established with the NBIA and it is a question of now further developing the relationship.

000m².000 m² as a benchmark depending on the type of incubator. Length of tenancy: A benchmark of 3 years is suggested. The number of jobs generated by a typical tenant company will vary immensely depending on the type of industry the firm specialises in. high-growth firms and their capacity to create new jobs. there was a notable clustering of incubators reporting a survival rate amongst tenant firms of 80-90% and the benchmark is based on this. We would emphasise that survival rates are one indicator of the performance of incubators. Incubator space/number of tenants: The average incubator space in the survey was 3. it should be possible to ‘free-up’ management so that more time is spent advising tenants and less on administrative matters. We have assumed that. There is a good deal of evidence to suggest that a minimum of 2. Survival rate of tenant firms: The survey revealed that the survival rate of firms reared in an incubator environment was significantly higher than the business success rate amongst the wider SME community. the ratio of incubator managers to incubator tenants should ideally not exceed 1:20. Job creation – average jobs per tenant company / new jobs per incubator: Whilst employment creation is one of the key objectives of business incubators.Benchmarking of Business Incubators Notes: Capital investment and operating costs: It is inappropriate to set benchmarks for incubator capital investment and operating costs because these will vary widely depending on the type of incubator.000 m² space is needed (enough to accommodate 20-30 companies) to achieve economies of scale.) while still ensuring that tenant firms have permanent access to managerial-level advisory support at all times. whereas an incubator providing just office to new start-ups will require less capital investment.000 m² to 4. Centre for xi Strategy & Evaluation Services . high-tech R&D and high-tech manufacturing because of the longer product development lead times associated with those business sectors. estimated at 30-50% (over a 5 year period). the extent to which industry is technology-intensive as opposed to labour intensive. etc). Proportion of revenue dependent on public subsidies: Whilst the public funding requirements of incubators will inevitably vary depending on location-specific factors such as the dynamism of the regional economy and the extent of market failure. setting a benchmark for the number of jobs created per firm or per incubator would be inappropriate because the number of jobs created will vary greatly depending on the type of companies being incubated. the amount of tenants the incubator can accommodate and the amount of available space. In the survey. advisory services. amongst others. sickness etc. highlighted in the survey. relevance and utility of business advisory. the total number of graduate jobs created per incubator will vary because the total aggregate number of firms varies widely between incubators specialising in different types of industries. Number of Managerial Staff/Ratio of Staff:Tenants: The benchmark of at least two managers assumes an average of 20-30 tenants and allows sufficient flexibility to cover absence (training and professional development. For example. It should be noted that the benchmark applies to the average incubator and would not be appropriate for some specialist types of incubators.g. stands at 39%. we have assumed that incubators should try and increase the proportion of operating costs derived from their own activities (rent. The survival rate of incubator tenant firms operating in more high-risk sectors such as high-tech industry may well be lower. We suggest a range of between 2. Given that the real added value of incubation lies not in real estate aspects but in the quality. the proportion of management time spent advising clients. of more importance is the extent to which incubators can contribute to the accelerated development of innovative. e. holidays. conferences. a biotechnology incubator requires dedicated laboratory space as well as office space. Proportion of Management Time Advising Clients: Currently. ideally. biotech incubators. Similarly.

we have set a range. When setup costs and the amortisation of capital are taken into account. which we feel is more appropriate given that incubators receive widely differing levels of support from the public sector/ EU depending on location-specific factors. Rather than setting a benchmark. ___________________________________________________________________________________ Centre for xii Strategy & Evaluation Services .Benchmarking of Business Incubators Cost per Job: The average gross cost per job according to the incubator survey was €4.700. the figure rises to €6.400.

Support this with ‘operational’ benchmarks’ that define the means of achieve the ‘headline’ benchmarking performance. The objectives of the project were. to: Define ‘headline’ benchmarks for business incubators relating to their performance with regard to management and promotion. in summary. Members of this group are listed below: Table 1: Members of Managers Group Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Portugal Spain Sweden UK Group Member Walter Ortner Philippe Chèvremont Flemming Bahner Lauri Ylöstalo Françoise Boivert Dieter Tischendorf Professor Loukakis Desmond Fahey Renato Angelino J G Van der Velde Vasco Varela Jesús Casanova Payá Sten Gunnar Johansson Richard Clark Incubator FAZAT-Steyr CEEI Héraclès. The programme of work carried out by CSES involved two main phases: Phase 1 focused on preparing an analytical framework and involved a review of previous research and other literature on business incubator activities. During Phase 2 the framework was tested and further developed through a series of interviews with incubator managers. We also carried out a wider survey of business incubators in EU Member States and obtained survey data from the USA. Provide assistance to business incubators that participate in the exercise to implement operational improvements by. stakeholders and client companies. The CSES team has been guided throughout the project by a ‘Managers Group’ consisting of Chief Executives of business incubators from EU Member States. Charleroi Center for Advanced Technology Otaniemi Science Park Bordeaux Productic TechnologieCentrum Chemnitz Lavrion Technological Park Dublin Business Innovation Centre Sviluppo Italia Triade (Meditech Center) Taguspark CEEI Valencia Mjärdevi Science Park Project North East.Benchmarking of Business Incubators Section 1. Newcastle Centre for 1 Strategy & Evaluation Services . amongst other things.1 Overview This document contains the final report on the project ‘Benchmarking of Business Incubators’ which has been undertaken for the European Commission by the Centre for Strategy & Evaluation Services (CSES). producing guidance on achieving benchmarked performance and examples of best practice.

the USA and other countries. including ‘headline’ and ‘operational’ indicators. Managing Partner of e-strategy sprl-bvba from Brussels. Section 4 – Setting Up and Operating Business Incubators: in the first of three sections (Part 2) we examine issues relating to setting up and operating incubators including incubator strategies.2 Structure of the Report The final report is structured as follows: Section 2 – Background and Policy Context: we begin by examining the origins of the business incubator model and developments in Europe. In terms of its readership. Centre for 2 Strategy & Evaluation Services . and financial aspects. We have also been advised by two external experts: Rustam Lalkaka. promotion and other management issues. We would like to thank all those who have assisted with the project. including a summary of ‘headline’ and ‘operational’ indicators. President of the New York based firm Business & Technology Development Strategies. this report is aimed in the first instance at providing managers and others involved in either setting up or operating business incubators with guidance on best practice benchmarks against which they can judge the performance of their projects. We then review the European policy context and previous research. the ‘Managers Group’ met three times in Brussels to review outputs and make suggestions concerning the future direction of the work.Benchmarking of Business Incubators Section During the course of the assignment. key performance drivers and other aspects of the framework. key incubator functions. and especially Mr Christer Hammarlund from the European Commission’s Enterprise DG. The final section includes recommendations with regard to future priorities for the development of business incubators in Europe that are intended primarily for the European Commission and national authorities. 1. Section 5 – Key Business Incubator Functions: this section examines incubator target markets admission and exit rules. and a number of best practice and policy recommendations. for their support and inputs. the role of partnerships. Section 7 – Conclusions and Recommendations: presents overall general conclusions. Section 3 – Benchmarking Framework: this section sets out the methodology that has been developed for benchmarking incubators. and Larry Moffit. Section 6 – Evaluation of Incubator Services and Impacts: the penultimate section considers how incubator services should be monitored and draws on the survey data from incubators and their clients to illustrate how impacts can be evaluated.

By providing services on a 'one-stop’ basis. and enabling overhead costs to be reduced by sharing facilities.1 Role of Business Incubators Business incubators provide entrepreneurs with a supportive environment to help establish and develop their projects. business incubators can significantly improve the survival and growth prospects of start-ups and small firms at an early stage of development. 2. and developments in Europe. the various definitions. organisations which have no single physical location and concentrate instead of managing a network of enterprise support services ('incubators without walls'). business and innovation centres. the term 'business incubator' is often used to describe a wide range of organisations that in one way or another help entrepreneurs develop their ideas from inception through to commercialisation and the launching of a new enterprise. the USA and other countries. In its generic sense. so-called ‘new economy’ incubators. and a variety of other models. We then review the European policy context and previous research.Benchmarking of Business Incubators Section In this section we begin by examining the origins of the business incubator model. A broad definition of the term embraces technology centres and science park incubators. The evolution of the business incubator concept is summarised in Figure 1: Figure 1: Evolution of the Business Incubator Model 1970s Managed Workshops Enterprise Agencies Industrial Estates Early 1980s Business Centres Business Incubator Concept Science Parks Multi Purpose Incubators Mid 1990s Specialised Incubators Technology Incubators Incubators Without Walls Sector Specific Incubators Late 1990s New Economy Incubators Virtual Incubators Centre for 3 Strategy & Evaluation Services .

This is intended to mobilize ICT and provide a convergence of support. i. Its aim is to improve the chance of growth and rate of survival of these firms by providing them with a modular building with common facilities (telefax. however. but also in Europe. to a 'bottom-up' approach focussing on maximising the indigenous potential for economic development. etc). towards creating growth-potential. regions and communities. These market failures stem from the relatively high costs and risks of providing services to SMEs compared with larger firms and the unwillingness of the private sector to assume these costs and risks given the often modest returns. not only in the US. There are now thought to be around 3. information and other resources. November 2001. it was recognised in both the Europe and the USA that fresh strategies were needed to help regenerate crisis sectors. business incubators began to be used as instruments to support innovation and technology transfer. Brussels. Paper presented to Belgian Presidency’s international conference on business centers. facilities. gaps and deficiencies in the support structure available to smaller firms (lack of affordable.Benchmarking of Business Incubators Section The origins can be traced back to Western industrialised countries in the late 1970s and early 1980s.) as well as with Rustam Lalkaka ‘Best Practices in Business Incubation: Lessons (yet to be) Learnt’. In the 1990s the need was recognized for supplementing the work space with counselling. although many in the developing countries are still stuck in the original mode. This has led to the ‘second generation’ incubator. computing facilities. The rationale for publicly funded business incubators – as with other types of subsidised assistance to SMEs . 2. Other incubator models do not.2 Incubator Definitions and Typology At the 1998 Helsinki workshop. often serves also as an important catalyser for the commercialisation of research and technology and provides a ‘laboratory’ of sorts to promote entrepreneurship.3).lies ultimately in addressing market failures. Strategies pursued in the 1980s were broadly characterised by a switch in emphasis from a 'top-down' approach relying on exogenous factors and involving public intervention to transfer surplus mobile capital and jobs from developed to underdeveloped or declining regions. a new incubation model emerged in parallel.000 business incubators of various types world wide. The ‘new economy’ model referred to be Lalkaka has of course not developed to the extent originally hoped (experience is reviewed in more detail in Section 2. tech-based ventures. of access to finance. Centre for 1 4 Strategy & Evaluation Services . have market failure as their rationale. services. divisible work space. Lalkaka1 sums up the evolution of the incubator concept as follows: The ‘first generation’ incubators in the 1980s were essentially offering affordable space and shared facilities to carefully selected entrepreneurial groups. etc. Incubation. Starting in 1998. Faced with a rapid rise in unemployment resulting from the collapse of traditional industries. for tenants within the facility and affiliates outside. At the same time.e. a business incubator was defined as: ‘A place where newly created firms are concentrated in a limited space. skills enhancement and networking services to access professional support and seed capital.

mentoring and visibility which are not mentioned in the NBIA definition: ‘Business Incubation is a dynamic business development process. ready access to mentors and investors. An alternative definition that highlights the other services offered by incubators is provided by the US National Business Incubation Association (NBIA): ‘Business incubation is a dynamic process of business enterprise development. territorially orientated mission of business incubators: ‘The European Community Business and Innovation Centres (EC BICs) – as they are officially known – are support organisations for innovative small and medium-sized businesses (SMEs) and entrepreneurs … operating in the public interest. 3 2 Centre for 5 Strategy & Evaluation Services . flexible leases and expandable space — all under one roof. 4 EBN. 2001). A somewhat similar approach – with an emphasis on the ‘output’ side of the business incubation process rather than ‘inputs’ .’4 European Commission OJ C186 – 51/52 dd.’ In contrast.is adopted by EBN. Best Practice in Action: Guidelines for Implementing First Class Business Incubation Programs’ (NBIA. Whilst the provision of physical space for start-ups is again seen as a defining characteristic of incubators. in the case of the UKBI. visibility in the marketplace.an entrepreneurial and learning environment. 1998. They also offer entrepreneurial firms shared office services. This goes further than immediate outputs and stresses the wider. thereby contributing to regional and local development. A business incubator is usually a property with small work units which provide an instructive and supportive environment to entrepreneurs at start-up and during the early stages of businesses. the definition used by ELAN in France does not mention the physical attributes of an incubator at all and instead puts the objectives of promoting new startups and helping existing firms to expand at the centre of its definition. 27. equal emphasis is placed on other aspects including. Incubators provide hands-on management assistance. in order to offer a range of integrated guidance and support services for projects carried out by innovative SMEs. It is a term which covers a wide variety of processes which help to reduce the failure rate of early stage companies and speed the growth of companies which have the potential to become substantial generators of employment and wealth. July 1990 NBIA. The main emphasis is on local development and job creation. entrepreneur training. access to equipment. Incubators nurture young firms. helping them to survive and grow during the start-up period when they are most vulnerable.Benchmarking of Business Incubators Section managerial support and back-up services. access to financing and orchestrated exposure to critical business or technical support services.’3 The definitions adopted by the UKBI and German ADT are similar. they are set up by the principal economic operators in an area or region.’ 2 This definition dates back to 1990 and in light of developments since then arguably places too much emphasis on physical aspects of incubator operations. Incubators provide three main ingredients for growing successful businesses .

as constituting the essence of the concept. There are of course alternative business incubator typologies but the approach outlined in Figure ( ) provides a broad framework. and combination of incubator units and business support services being seen as what makes the incubator concept unique. At the opposite extreme. although not always.5 Industrial estates in the top left-hand corner generally have a non-selective intake. Centre for 5 6 Strategy & Evaluation Services . and the business incubation process itself. Figure 2 illustrates the relationship between different incubator modalities and between these and other SME promotion structures that include a physical space element. provide little or no management support and have no special criteria with regard to business activities and technology content. Figure 2: Typology of Business Incubators T e c h n o lo g y L e v e l Low M ed iu m H ig h Low In d u stria l E sta te B u sin e ss P a rk S c ie n c e P a rk M e d iu m M anaged W o rk sh o p E n te rp rise C e n tre In n o v a tio n C e n tre H ig h M u lti P u rp o se B u sin e ss In c u b a to r B u sin e ss & In n o v a tio n C e n tre T e c h n o lo g y C e n tre M anagem ent Sup port Business incubators are positioned towards the bottom right-hand corner of the matrix since they provide a high degree of management support to tenants and usually. provide 'hands-on' management support. secondly. there is a considerable degree of overlap with (in most cases) the focused approach to SME promotion. the differences. lie in the varying emphasis placed on the importance of physical aspects as opposed to other business support services. and have a highly specialised technology focus. technology centres have highly selective admission criteria. in the bottom right-hand corner.Benchmarking of Business Incubators Section There are two main conclusions to be drawn from this brief review of the various incubator definitions: firstly. For example. cater for technology-based enterprises. the US National Business Incubation Association (NBIA) makes a distinction between technology. to the extent that they exist. empowerment and mixed use incubators.

Gorilla Park. the role of incubators in the promotion of entrepreneurship. Specialised incubators have been established by universities or private sector organisations. by 1999. For this reason. there is an array of other types such as Business & Innovation Centres (BICs). Over the past five years. only 1 out of every 25 technology incubator companies was IT related. 1999 7 Hansen. this figure had risen to 20. HP and Dell and IBM. The Harvard Business School in its recent survey 7 identified 356 such incubators around the world. non-technology related sort: for example. and innovation centres that all share basic incubator characteristics.S. about 25 % of the total U. especially for accelerating the start and growth of ICT-enabled ventures. and dot com start ups such as cocoon. In Europe. innovation. incubators). Berger. 6 In the USA. The Structural Funds and their co-ordination with the Cohesion Fund (guidelines for SF programmes for the period 2000-06). there has been a similar trend. Between the ‘traditional’ regional development model and ‘new economy’ incubators.. Ernst & Young. and Brazil (10). The others include Canada (14). employment and economic growth is widely acknowledged with the 2000-06 Structural Fund guidelines highlighting business incubators as a key instrument of EU regional policy. The primary goal of the first category of business incubators (which we have called ‘traditional’) is to facilitate economic development by promoting entrepreneurship. Cartezia. telecommunications companies such as Sprint PCS. the ‘general service’ type incubator is giving way to a more specialist approach and Technology Business Incubators (sometimes known as Technology Centres or Innovation Centres in Europe) have risen from accounting for under a quarter one-fourth to over one-third of total. Sponsors include the quoted arms of established consultancies and technology solutions providers such as Bain & Co. The growth of ‘new economy’ incubators is reflected in the fact that whereas in 1994. a cross-border incubator has recently been established on the border between Germany and the Netherlands for companies seeking to trade in these two countries. China-Hong Kong (11). employment opportunities and growth. and Internet-Incubation. there has also been a quite rapid growth in for-profit incubation systems. June 2000 Centre for 6 7 Strategy & Evaluation Services . UK (28). most of the incubators are operated directly by the national or local authorities. There are also some interesting specialised incubators of a different. Nohria. ‘The State of the Incubator Marketspace. Ant Factory. technology centres. In Europe. Of these 222 are in the US (that is.Benchmarking of Business Incubators Section ‘Traditional’ and ‘New Economy’ Incubators The focus of this project is on the types of business incubators located towards the bottom of Figure 2 but it is nevertheless helpful to make a further distinction between incubators that have a public policy-driven enterprise promotion and/or regional development function and ‘new economy’ incubators: these types illustrate the diversity of business incubator models particularly well.

they tend to focus mainly on high-tech and internet-related activities and unlike ‘traditional’ incubators. Secondly. November 2001. nurtured One example of a ‘new economy’ incubator is the recently renamed Accenture (previously Andersen Consulting) which has set up Business Launch Centres in the UK and the US which provide new startups with business advisory services and technological assistance ranging from help on building alliances and Business Development. technical infrastructure development through to Marketing and PR Assistance. Large multinationals have also been keen to capitalise on their expertise in the e-economy. Centre for 8 8 Strategy & Evaluation Services . net-worked model has taught some lessons and continues to have relevance.have closed down. 9 Rustam Lalkaka ‘Best Practices in Business Incubation: Lessons (yet to be) Learnt’. Lessons to be learnt are that the high market capitalisations given to ‘new economy’ firms meant that businesses could derive significant value by spinning off or ringfencing non-core innovative ideas and concepts into separate businesses. Paper presented to Belgian Presidency’s international conference on business centers. especially in the USA. this model provides a smart workspace. Nevertheless. The bulk of these incubators -. the equity-based. mcommerce (mobile phone commerce driven by WAP technology) and v-commerce (voice activated commerce) by offering advisory expertise to new high-tech start-ups within a virtual incubator model. takes equity in the companies through an affiliated venture capital facility. some 400 for-profit.once considered the paradigm of best practice -. The strategic objectives and modus operandi of ‘new economy’ incubators differ fundamentally from their ‘traditional’ equivalents: ‘New economy’ incubators are private-sector. namely the rapid development of the B2B and B2C sectors. focused consulting services to a small growth-potential group of firms. do not have job creation as their principal aim. ‘new economy’ incubators often have an essentially virtual presence with financial and business services at the core of the offering unlike their ‘traditional’ counterparts that usually centre on the provision of physical workspace.8 New economy incubators are usually funded by venture capital companies or set up by large multidisciplinary consultancies that are able to offer a complete range of technological. profit-driven with the pay-back coming from investment in companies rather than from rental income. Brussels. The sharp decline of dot-com companies since mid-2000 has resulted in of the Internet-focused model. e-commerce.S and elsewhere. due to the expanding opportunities that the Internet seemed to offer and due in part to unrealistic expectations. Typically. and accelerates them to the market. advisory and other business support services to their clients. Internet incubators were added in the U.Benchmarking of Business Incubators Section ‘New economy’ type business incubators are often primarily virtual. Thirdly. According to Lalkaka9: In the 1999 – 2000 period.

An overall definition might be as follows: Figure 3: Definition of Business Incubator A business incubator is an organisation that accelerates and systematises the process of creating successful enterprises by providing them with a comprehensive and integrated range of support. there have been some positive and more wide-ranging consequences. their basic functions are often very similar. admission and exit criteria. Likewise. we have used the term ‘business incubator’ to describe the family of organisations embraced by the various definitions – the French ‘Pépinières d'Entreprises’. will distinguish one type of business incubator from another. ‘new economy’ incubators offered an ideal environment for the nurturing of ICT-based start-ups. Differences in stakeholder objectives for incubators. For the purposes of this project. and the precise configuration of facilities and services. The recent stock market corrections has made this particular business model far less attractive. Perhaps a better way therefore of differentiating between organisations that all share basic incubator characteristics is to identify those that are for-profit from those that are not. business support services. in the foreseeable future at least. A successful business incubator will generate a steady flow of new businesses with above average job and wealth creation potential. etc) are also far from perfect since. the term ‘traditional’ and ‘new economy’ incubators are not appropriate categories to use given the brief success of the latter model and (as some would argue) its inherent flaws as a business model. we adopt a combined approach by drawing on the experience of ‘new economy’ incubators as a ‘for-profit’ model. Business & Innovation Centres. and clustering and networking opportunities. science park incubators. The ultimate purpose of comparisons is to highlight the fact that the development of a benchmarking framework needs to be sensitive to the diversity of incubator models and operations. German ‘Technologiezentren’ and ‘Gründerzentren’. Venture capitalists could capture the attention of the press in ways that few non-profit organisations could. the media came to understand the concept of incubation for the first time. This attention led to increased development of both for-profit and not-for-profit incubators and the subsequent creation of many new companies. In the period between mid-1998 and mid-1999. By providing their clients with services on a 'one-stop-shop’ basis and enabling overheads to be reduced by sharing costs. and so on. business and innovation centres. Alternative classifications (technology centres. despite different names. including: Incubator space. In many respects. business incubators significantly improve the survival and growth prospects of new start-ups. and the ‘traditional’/’new economy’ models illustrate this diversity particularly well. In Part 2 of the report. Nevertheless. the knowledge intensity of projects.Benchmarking of Business Incubators Section them in an incubator-type environment.3 Geographical Scope and Scale of Incubator Activities 9 Centre for Strategy & Evaluation Services . 2.

Benchmarking of Business Incubators Section According to a recent estimate. such as University of California/Berkeley. seeks to create strategic partnerships for attracting innovations while the Reuters incubators Centre for 10 Strategy & Evaluation Services . the for-profit corporate incubators continue. November 2001. In many ways the U. Apart from universities with affiliated incubators. University of Wisconsin/Madison. has been a pioneer in the industry.000 in year-2000 – the largest in the world. Paper presented to Belgian Presidency’s international conference on business centres. there are now around 3. Brussels. some business schools are starting their own incubator. In addition to the incubators started by government authorities and agencies. European Commission. In the US. and University of North Carolina/Chapel Hill and Babson College.S. The Panasonic incubator at Cuppertino. Enterprise DG (data on Western Europe). The faculty and facilities together with access to a variety of contacts and VC enable the students to put their learning to concurrent practice. Middle East and Others Source: Rustam Lalkaka ‘Best Practices in Business Incubation: Lessons (yet to be) Learnt’. to about 1. this model typically provides the considerable reputation and resources of the sponsoring corporation towards meeting its unique goal through supporting selected ventures.000 business incubators world-wide. from less than 100 in 1980.000 1000 900 800 600 600 400 200 200 150 150 0 Eastern Europe Western Europe North America South America Far East Africa. CA. While there has been a decline in dot-coms. state and local economic development programs have sought to create public-private partnerships to replicate these hubs of technological innovation.S. around 20% of the US technology incubators are associated with universities and/or science parks. A rough breakdown is shown in Figure 4: Figure 4: Business Incubators World Wide 1200 1. Due to the success of the Stanford Research Park starting in 1951 and the Research Triangle Park in North Carolina in 1959. Other schools such as Stanford prefer that their B-school students spend their total energy on acquiring knowledge before venturing forth. have grown rapidly in numbers. North America: Business incubators in the U.

a university in the south for biotechnology. three pilot incubators were established in Java. Although the first incubator in Korea was started in 1993. In Indonesia. Ma Feng-Ling and D. It was announced at the World Business Incubator Conference (October 2001) that based on a national competition. starting with ten a decade ago. Lalkaka. In India there are now 18 Software Technology Parks (STPs) and 15 Science & Technology Entrepreneurs Parks (STEPs) are similar in some respects to technology incubators while lacking a few of the distinguishing features.Benchmarking of Business Incubators Section promote innovations by its own employees. to create 150. full-fledged incubators are now being established at the Indian Institute of Technology in New Delhi in Mumbai. with 144 incubators in actual operation today. located in every province. with UNDP assistance in 1994. UNIDO. Intelligent Systems has used its incubation facility to invest in early-stage tech ventures. Monsanto’s Nidus Center has broader economic development goals of stimulating entrepreneurship in the region. lowcost or no-cost loans by local state agencies. 203 business incubators of different types are reported to be in operation. In Uzbekistan with political support from the State Committee for 10 R. and some on-going operating subsidies. In Malaysia. 40 additional locations have been selected for support. Far East: From its beginnings in 1987 with a catalytic UNDP input. The programme’s expansion has been the result of significant subsidies . there are now some 127 incubators in China.usually up-front in land and buildings. 1999. South America: Brazil now has about 160 business incubators. Based on our research. This has now been extended into a major national program with many more incubators at universities in the out-lying islands. Some of the others lack the distinguishing features of incubation. In addition there are many other organisations such as "software parks" that function much like incubators. an Advanced Materials Technology Incubator in Hyderabad. The Vision for year 2010 calls for developing 300 new incubators and training 500 professional managers. giving a total of around 200 as of 2000. Assessment of China Incubator Program. Centre for 11 Strategy & Evaluation Services . the major expansion has taken place in the last three years.000 new jobs. Universiti Malaysia (electronics and manufacturing). Incubators are also operating or being planned in other South American countries although the programmes elsewhere are less advanced than in Brazil. In addition. There are about 200 in total. the Technology Development Corporation has established Technology Development Centers to facilitate university-researchbusiness collaboration in specific sectors: at Universiti Putra Malaysia (for multimedia work). of which about one-third provide typical incubation services with dedicated management staff. Lalkaka. An Indonesian Business Incubator Association was also formed. autonomous region and major city except Tibet and Qinghai10. the China incubation program has developed into the largest of its type in the developing world. and other locations. and Universiti Kebangsaan Malaysia (biotechnology and pharmaceuticals). In Japan.

particularly in the Czech Republic. In other regions. Today. since 1993 programs have been aimed at creating employment and restructuring the Polish economy. KOSGEB. albeit mostly on a smaller scale. Similar incubator programmes are underway in other Central and Eastern European countries. This includes a growing network of incubators in Nigeria and quite well developed plans in Ghana for several incubators. Jamaica. Africa. mostly in agribusinesses. the Social Fund for Development of the Government of Egypt has established a major network of incubators as a component of its extensive small business development and employment generation programs. The implementation of incubators is being undertaken by the Egyptian Incubator Association. Elsewhere in Africa. Welcom. In 1996 the Republic Business Incubator Network was initiated.Benchmarking of Business Incubators Section State Property Management and Entrepreneurship Support (GKI) two pilot incubators were started at Tashkent and one at Samarkand in 1995. and the Technology Innovation Center University of Technology. and has been expanded to about 20 facilities. provides the full financing for eight incubators linked to the technical universities. In several other countries there is good progress in establishing advanced technology-based facilities. Middle East and Other Regions: In Egypt. Eastern Europe: UNDP technical assistance in 1990 helped pioneer the concept in Poland. of these about half are functioning as proper incubators. there are currently thought to around 900 business incubators (using a broad definition). the European Commission’s Enterprise DG has undertaken a mapping exercises and 12 Centre for Strategy & Evaluation Services . starting with the first incubator in Poznan. there have been fewer incubator initiatives. Incubator developments are also underway in Kimberley. State agencies – NTSIKA and KHULA . While earlier the incubators were focused on technology commercialisation. there also developments. the state small enterprise support agency. Turkey started a technology incubator program in 1990 (still referred to as Technoparks). Today over a dozen incubators are in operation and many more are under planning or implementation. established by the Small Business Development Corporation. such as the Panama Technology Business Accelerator. starting as a UNDP initiative in 1992. Natal and the Council for Scientific and Industrial Research as well as a UK government assisted program.are establishing Local Industrial Parks comprising incubators and multi-tenant buildings. South Africa has had for many years a network of facilities called “hives of industry”. Western Europe: In Western Europe. an NGO set up in 1995 for this purpose. Currently there are about 65 incubators in Poland. ConceptNursery in Sri Lanka. Bloemfontein. In a parallel exercise to this project. with significant support from the World Bank and EU. The creation in 1992 of the Association of Polish Business Incubators and Innovation Centers became the catalyst for growth. the Dubai Ideas Oasis.

No. With the exception of Belgium and the Netherlands. Incubators 63 131 7 192 26 300 7 6 45 2 6 B .000 companies.Benchmarking of Business Incubators Section compiled a database of incubators in EU Member States. A summary of the Enterprise DG analysis and CSES estimates is shown below in Table 2(a). Table 2(b): Ratio of Business Incubators to SMEs in EU Member States Member State Austria Belgium Denmark France Finland Germany Greece Ireland Italy Luxembourg Netherlands Centre for A . the average ratio is 1:19.334 747 160 3. whereas in Austria (with the highest ‘density’) there is one incubator per 3. SMEs (’000s) 237 594 235 2. Table 2(a): Business Incubators in EU Member States Country Number Country Italy Luxembourg Netherlands Portugal Sweden Spain United Kingdom TOTAL Number 45 2 6 23 39 38 144 911 Austria 63 Belgium 13 Denmark 7 France 192 Finland 26 Germany 300 Greece 7 Ireland 6 Source: Enterprise DG (2001) and CSES research Table 2(b) on the next page calculates the ratio of incubators to SMEs in each country to give a more meaningful indication of the ‘density’ of business incubator developments across EU Member States.116 180 3. in Greece (with the lowest ‘density’) the corresponding figure is 1: 106.251 18 550 Ratio A:B 1:3 1:45 1: 33 1:11 1:7 1:11 1:106 1:26 1:72 1:9 1:91 13 Strategy & Evaluation Services . it does provide a broad indication of where incubator developments have been on the largest scale. the lowest densities of incubators are to be found in southern EU Member States.000 companies. The analysis points to a wide variation in the ‘density’ of business incubator developments: thus. Across the EU as a whole.No. An analysis of this sort has of course limited value because business incubators generally have very specific target markets.000. Nonetheless.

Despite their early origins. where the first technology centres were set up in the Western part of the country during the early 1980s. where there has been a relatively late development of the incubation network. all the incubators are attached to science parks and there is a similar situation in Sweden whereas in Finland in addition to the technology centres.025 1:19 Source: Table 2(a) and Ernst & Young ‘Evaluation of Impact of Structural Funds on SMEs’ (1999) Not surprisingly the largest number of business incubators (and some of the most favourable ratios) is to be found in the EU’s larger Member States. TE-KESKUS. Portugal has 23 business incubators (8 EU-recognised BICs. According to the Austrian association (VTO). the Italian national agency for economic development and entrepreneurship promotion. Turning to the smaller EU countries. and 4 science park-based Centre for 14 Strategy & Evaluation Services . the national BIC association. Towards the end of the decade. there was a rapid expansion of business incubators in Austria during the 1990s. but only around 50 meet the ‘minimum standard’ definition (‘norme française’) adopted by ELAN. the national association. Germany. 4 incubators operated by the National Association for Young Entrepreneurs. has set up 15 business incubation centres which provide a range of business advisory and development services to businesses and entrepreneurs. where the incubator concept is sometimes claimed to have originated in Europe.349 1:61 144 UK 3. has Europe’s largest business incubator association. Most of the incubators in Italy are part of BICs. Belgium has a fairly even number of business & innovation centres (mainly located in Wallonia) and technology centres (mainly in Flanders). there is a considerable variety of entities ranging from science part incubators to BICs and managed workshops. There is a similar situation in Ireland and the Netherlands. A pronounced feature of German incubators is the close link most incubators have with universities and R&D institutes. in Austria. the first steps were taken to also develop incubators in the Eastern regions and this trend accelerated after reunification. 5 other incubators supported by the Ministry of Employment of which 3 have incubator space. there are now well over 60 business incubators in the country that are either already operating or in the process of being established. In contrast.355 1:23 911 EU15 18. There is a similar situation in Spain where a high proportion of the incubators are members of ANCES. there are now 13 business incubators operated by Sviluppo Italia. in Denmark. there are also a large number of incubators. In France. The United Kingdom. In Italy. A further 17 additional incubators are currently in the process of being built or are going through the planning stages. a national association was established only comparatively recently. following the establishment of the first centres in 1986 in Graz and Linz.Benchmarking of Business Incubators Section 23 Portugal 656 1:28 39 Sweden 243 1:6 38 Spain 2.

Western Europe has a wide range of incubator models with countries at very varying stages in the process of developing networks and an absence of an overall structure at a EU level. Whereas in some EU Member States. Multiple responses possible A note of caution should be added in interpreting the data shown in the above table.Benchmarking of Business Incubators Section incubators).lu/incubators/ for further details on Enterprise DG’ website Centre for 15 Strategy & Evaluation Services .5 100. Overall.414 Source: CSES analysis of Enterprise DG Incubators Database. Liechtenstein).0 Total 1.2 14. the EEA countries (Norway. many other incubators have developed significant sectoral expertise.6 18. In addition. It should be noted that the database is still being developed. Sectoral Breakdown of European Business Incubators The source of data on sectoral specialisation used for our analysis is the Enterprise DG database of incubators across Europe. Table 3 provides a broad overview of the sectoral specialisations offered by incubators in Europe (multiple responses were possible). Iceland. Research & Development.2 11. Table 3: What sort of business activities does your business incubator specialise in? Business Activities (1) Sales.2 12.cordis. The analysis shows that high value-added activities such as Information & Communication Technologies. a significant percentage of the business incubators in Europe do not have any particular sectoral orientation and are essentially mixed-use facilities. marketing and distribution (2) Business and financial services (3) Advanced/ High-tech manufacturing (4) Information & Communication Technologies (5) Research & Development (6) Biotechnology/ Pharmaceuticals (7) Knowledge-based industries/ New Economy companies (8) Other Manufacturing Activities (9) Other Service Activities (10) A combination of some/ all of these activities Number 5 8 263 258 173 201 162 86 124 134 Percentage 0. the numbers are based on the membership of 11 See http://www.11 The purpose of the database is to provide an overview of the activities of business incubators in the 15 EU Member States. many specialise in knowledge-based. Switzerland and the 13 candidate countries.8 9. Biotechnology and Pharmaceuticals account for a large proportion of incubator tenant business activities. As in the US. Some are very small with only 5-6 rooms whereas others are much bigger with 25-30 units. new economy industries such as e-commerce and B2B services.5 6. However.6 18.4 0.1 8.

Its recommendations include. Concerted Action No 2 – support measures for enterprises which is aimed at developing business services for start-ups and SMEs. and/or very broad definitions are used. the promotion of lifelong assistance to SMEs by developing and/or improving business services and simplifying access to them. the contribution of other Community policies (such as the Structural Funds) to SME development. 2. definitions vary and in some cases organisations have been included that are in the process of developing the full range of business incubator characteristics but do not demonstrate them yet. growth phase. accounting and administrative requirements. Concerted Actions which aim to promote the exchange of best practice amongst Member States and with the Commission on SME policies. This covers: specific Community measures for SMEs as carried out under the multiannual programme for SMEs in the European Union. Concerted Action No 3 – aimed at stimulating SME demand for business support services and addressing underlying market Centre for 16 Strategy & Evaluation Services . in which the Commission assists the Member States to identify and exchange best practices.Benchmarking of Business Incubators Section national associations that have strict definitions. 1 – improving the SME environment by simplifying legal. increasing the profile of support services). Business support services also constitute one of the principal themes of the 'Concerted Actions'. Similarly. or there may be more than one organisation representing business incubators. The current version of the Integrated Programme proposes more focused action on business services. Various fields are covered: Concerted Action No.4 European Policy Context The Commission's 1997-2000 Integrated Programme for SMEs (and its successor) provides a framework for co-ordination of all activities in favour of SMEs. stimulating business support measures. An earlier Integrated Programme envisaged actions relating to the three different stages of a business life cycle (start-up and early development. among the key actions to be undertaken. The BEST Action Plan on 'Promoting Entrepreneurship and Competitiveness' set up by the Commission foresees improving the quality of information and advice services among the actions to be undertaken at both European and Member States level. in some other countries associations do not exist. transfer of a business) in three broad policy areas (improving the business environment.

5 Review of Previous Research on Incubators There has already been a large amount of research on business incubators. To summarise. have an important role to play in the context of both the above policies. the 2000 Lisbon European Council invited the Commission and the Member States to focus their action in favour of micro and small businesses. a number of benchmarking exercises have been initiated covering the various aspects and stages of SME development. Centre for 17 Strategy & Evaluation Services . the Commission adopted the communication Challenges for enterprise policy in the knowledge-driven economy and a proposal for a Council Decision on a Multiannual Programme for Enterprise and Entrepreneurship (20012005). where the research is based on surveys. the focus has tended to be on short-term measures such as failure rates rather than longer term job and wealth creation impacts. as was emphasised by the recent Lisborn Council meeting. a seminar was held in Helsinki in November 1998 to consider best practice in the business incubation field. Business incubators. To support these and other initiatives. The new Multiannual Programme provides a framework of actions in support of the objectives of the Communication. To the extent that previous studies have examined the impacts achieved by business incubators. In many cases. 2. case study-based approach). A detailed review of previous research into the operations of business incubators was contained in CSES’s interim report (May 2001). and the need to improve benchmarking techniques.Benchmarking of Business Incubators Section Within the Concerted Actions framework. In this section we highlight some of the key findings and explain how this project adds value to existing knowledge. It recommended that a benchmarking exercise should be undertaken with a view to preparing guidance starting up and operating business incubators. none of the existing research incorporates a trans-Atlantic dimension with comparisons between incubator activity in Europe and the USA. little attention paid to developing and applying best practice benchmarks (where this is done. Shortly after the Lisbon Council. Likewise. the review suggests that: Most existing studies are country-specific and there is relatively little research where the scope is pan-European. it tends to involve a more qualitative. there tends to be a focus on particular types of business incubators rather than covering the broad range. More recently. This set out the challenges to be faced by enterprise policy over the next five years. Last but not least.

12 Because the local environments in which business incubators operate vary from one location to another. Thus. However. UNIDO (1997) ‘Lessons from international experience for the promotion of business incubation systems in emerging economies’ Centre for 18 Strategy & Evaluation Services . it may be more appropriate for an incubator to network with other organisations to ensure that client needs are met. This is. and to establish best practice benchmarks. to date no attempt has been made to compare the findings. as emphasised by a number of other studies. the point is that this information (e. whilst it may be necessary in some areas for business incubator to provide some if not all services on an ‘in-house’ basis because there are few external providers. there is a widely held view that US incubators tend to perform better than their European counterparts (with. As a result. but then goes further by drawing on the results of an interview programme and other fieldwork (not typically a feature of survey-based studies) to explain why differences in performance exist. whereas some incubators will have job creation as a key objective. An exception was a survey was undertaken by EBN in 1998 which was EU-wide in scope but this was limited to 69 Business & Innovation Centres from 10 countries rather than covering business incubators generally. But there is little or no research to support 12 13 EBN (1997) BIC Observatory report for the European Commission and BIC CEOs. mean that the results need to be treated with caution and fully explained. there are of course limits on the extent to which comparisons can be made. the case with most of the research undertaken by national associations such as the ADT. The last of the points listed above is largely self-explanatory: whilst there has been a considerable amount of research on both sides of the Atlantic. for example. In contrast. technology centres. etc). However. especially since the questions asked in surveys tend to vary from one country to another. for example. occupancy rates. existing survey-based studies of business incubators provide detailed information on their features and operations. for example. others may not if they are located in areas with low unemployment. more emphasis in the USA than Europe on a for-profit approach.13 With regard to the third of the above points. number of incubator units. ELAN.g. there is limited scope for comparative analysis. best practice suggests that common to both situations will be a strategy to ensure that the operations of an incubator to not ‘crowd out’ privates sector provision. greater success in leveraging venture capital investment. this project uses survey data to highlight differences in incubator performance. a shortcoming of existing research on business incubators is that it is mostly country-specific and limited is scope to a particular incubator modality (BICs. types of tenant firms) does not in itself explain why some incubators appear to perform better than others. Similarly.Benchmarking of Business Incubators Section Taking the first point. in other regions with relatively advanced public and private business support services and agencies. UKBI and others. etc). These and other complications do not negate the justification for comparative assessments but do. See. For example. To judge the performance of different incubators according to a common indicator such as job creation may therefore be difficult.

only after the state has financed the 14 NBIA (1997) Impact of Incubator Investments. many if not most ‘traditional’ business incubators rely heavily on public funding to help meet set up and operating costs. large companies and their local supply chains.14 Appendix ( ) provides a summary analysis of the approach adopted by the NBIA and by EBN in Europe. far less attention has been paid to the question of how incubators fit into broader regional structures and strategies. The literature review contained in CSES’s interim report highlighted a number of more specific findings from previous research. attributable to the essentially survey-based approach of much of the previous research. for example. and the remainder by developers or investment groups. job creation and other policy objectives. The NBIA research in the USA and work by national associations and others in Europe provides a good description of the types of organisations that are typically involved.15 Lalkaka. based on presentations made at Conferences in Trieste/Italy in December 2000 and in Bangalore /India in January 2001. competitiveness. The last survey undertaken by the NBIA was in 1997 and obtained a response from 50 incubators (a further survey is currently underway). Centre for 19 Strategy & Evaluation Services . study carried out for the US Department of Commerce. the role of an incubator will be to promote SMEs. the aim will be to maximise the return on an investment through the sale or lease of the incubator’s premises.Benchmarking of Business Incubators Section assertions such as these. EBN’s 1998 survey contains a similar analysis for EU BICs and the ADT. in examining business incubator objectives and sponsorship. earlier studies have stressed the importance of broad public-private partnerships. As a recent UNIDO study has observed ‘generally. the private sector will participate in the incubation process.varies. has been addressed in the current project through the interview programme with incubator managers and their partners. CSES ensured that key questions in the survey of EU incubators were ‘harmonised’ with those used by the NBIA in its current survey). Again. the 1998 NBIA survey which found that 51% of incubator sponsors were not-forprofit organisations. for example their role in supporting the development of industrial clusters combining R&D centres of excellence. for a real estate developer. the explanation for this is partly methodological since the surveys carried out by the NBIA are based on a questionnaire that differs from those previously used in Europe. This shortcoming. UKBI and other national associations have also examined sponsorship structures. the priority will be to help commercialise R&D. 16 Rustam Lalkaka ‘Approaches to Benchmarking of Business Incubators’. highlighting the limited extent to which the findings can be compared (to overcome comparability problems. For a research institute. Thus. Another aspect of incubator operations given quite extensive attention in previous research is the way in which they are financed. for a public agency. Economic Development Administration 15 See.16 But whilst existing studies consider partnership structures in some detail. highlights the fact that the motivation of different types of sponsors – and hence the objectives set for incubators . 27% were supported by academic organisations. 16% by public agencies. Existing studies stress that regeneration is a long term process and because of this. amongst others.

The report also found that supply for managed workspace exceeded demand. existing research suggests that these methods often fail to generate sufficient revenue and that the need for a ‘not for profit’ element remains. sufficient to accommodation between 20 and 30 enterprises.18 The research indicates that where business incubators have been able to break-even. The report found that the provision of business advisory support services to firms was an increasingly important source of income for BICs. OECD Report: Business Incubation: International Case Studies (1999).’17 This was also emphasised by the 1998 Helsinki conference. UNIDO (1997) ‘Lessons from international experience for the promotion of business incubation systems in emerging economies’.000 m2 of space for rent to tenants (with an average of 6. However. such as the Federation of Industry São Paulo (FIESP). very few could survive without public subsidies. typically accounting for 40-60% of all revenue. a recent OECD report suggests that business incubators in Europe typically provide 5-10. In this respect there are thought to be some differences between the EU and USA with generally higher private sector investment in business incubators the latter than the former. 20 17 European Commission (DGXV1) ‘Evaluation of Community Measures in Support of European Community Business and Innovation Centres’ (1999). Evaluation of Community Measures in support of European & Business & Innovation Centres. This study highlights several exceptions. 18 In Europe. they would not be able to survive without public assistance. a recent study (DG Regional Policy & Cohesion.20 Turning to operational issues. 19 A 1996 report by TZNRW in Germany argues that whilst by European standards a relatively high percentage of incubators had reached breakeven by generating income from renting space and business advisory.21 A key feature of the incubator model is the existence of admission criteria that limit assistance to a particular target market (particular types of business. An evaluation report carried out for DG REGIO in 1999 examined the effectiveness of community measures in support of EC BICs. projects with a particular type of technological orientation. with 47% of incubators deriving at least some revenue streams from them. etc). A study by the UK Enterprise Panel argues that incubators with the capacity to accommodate a relatively large number of clients are far better placed to generate the rental and other income needed to cover overheads. Summary Report) estimated that the majority of funding for business incubators comes from the public sector.500 m2). Centre for 21 20 Strategy & Evaluation Services . or with high job creation potential.Benchmarking of Business Incubators Section establishment and initial operations. in the case of advisory services the subsidy element was 19% and 42% with project assessment. this has been achieved in a variety of ways with rental income from tenants being generally the most important source of income. exit rules help to ensure that there is a continuous turnover of tenants. Likewise. This study showed that whereas on average 14% of rental charges paid by incubator clients were publicly subsidized.19 Other research suggests that subsidies are often not only needed to cover the cost of providing incubator space but also to enable a full range of business support services to be provided. The study found that 38% of incubators were managing to cover their running costs but 40% were subsidised by a variety of national and EU funded programmes and a further 23% received Structural Fund subsidies to make up the shortfall in revenue. However.

Benchmarking of Business Incubators Section However.E. 23 Examples include EBN’s 1998 survey EBN which estimated the success rate of new companies created by BICs at 93% (i. nor in 22 The same OECD report on international best practices (1999) confirms that in order to attract new tenants and meet annual financial targets. However. research by the ADT in 1996 indicated that the failure rate of incubator companies was around 5%. programme managers sometimes relax the selection criteria.e. The background and training of incubator managers is also relevant in this respect. those businesses succeeding past the one year stage). The remainder came from a variety of backgrounds – some had held positions in economic development agencies (often the parent organisation of incubators) whilst others had worked in property management. The NBIA’s 1998 study ‘The State of the Business Incubation Industry’ found that North American incubators created almost 19.000 companies and more than 245.000 gross jobs between 1984 and 2000. and Everett. Research in Australia (1996 OECD Report: Business Incubation: International Case Studies. The research suggests that apart from financial indicators and the routine monitoring of service delivery against quality standards.) indicated that only 6-9% of new businesses in incubators fail compared with reported first year failure rates for small businesses generally of up to 33%. the types of activities they are engaged in. as a recent study points out. financial institutions. few studies contain an assessment of incubator company growth rates. A further key issue addressed some earlier studies is how business incubator performance should be judged. technology support.23 More generally. or other business incubators. finance. earlier research suggests that business incubators often do not enforce these rules strictly if occupancy rates are low because of the need to maximise rental income. there is a lack of comparability with differing methods being used to calculate failure rates in different studies. J. there can be difficulties in combining these roles (according to the research 70% of managers spend less than 50% of their time providing advice directly to clients). Watson.000 jobs and that on Centre for 21 Strategy & Evaluation Services . universities.) Thus. most incubators (and independent studies) do not go beyond on the use of indicators such as start-up success/failure rates. as in many other aspects of incubator research. the study established that over two-thirds of the managers had previously been in business. 25 24 EBN estimates that BICs across the EU created approximately 10.22 Existing literature also stresses the role of incubator managers not only in ensuring that the organisation itself operates is an efficient manner but also in advising client companies. in Germany.24 (However. With regard to the previous work experience of incubator managers. although existing research examines physical aspects of incubator operations in some detail.25 But in neither case. J. or (apart from calculating the number of employees in tenant firms themselves) the wider socio-economic impacts. Likewise. Work to estimate direct employment effects attributable to incubators has been undertaken by EBN in Europe and the NBIA in the USA. there tends to be less emphasis on the question of what configuration of support services (advice. etc) produces the best results and how the business incubation process itself can be most efficiently organised.

Another study in the USA has suggested that for every 50 jobs created directly by incubator clients. The difficulty of ensuring a representative sample (i.27 Likewise. the OECD’s 1999 report on business incubators emphasises the difficulty in setting up a representative control group of non-tenant firms as a way of assessing additionality.000 which compares favourably with other governmental measures whose primary objectives is to create employment.28 Quite apart from the question of appropriate performance indicators. obtaining information form companies that have left incubators)29.g. the NBIA has carried out research that indicates that 84% of businesses graduating from an incubator relocated in the locality post incubation. is very much neglected with little or no evidence in most studies of ‘tracking’ of graduate company destinations and the performance of these firms and outreach clients. 26 An exception in this respect is an impact assessment of Aston Science Park/incubator (Ernst & Young. 1999) that included a survey of tenants and graduates to obtain their views on how the science park and business incubator had helped them.g. there is very little research focusing on the views of client companies themselves with regard to the value added of being located in an incubator (essential to assessing additionality). displacement and indirect effects into account26 or to assess costeffectiveness. Key steps in a benchmarking are summarised below: average.000 per job created. particularly as tenants moved towards ‘graduation’. 27 The NBIA’s research suggests that public sector supported incubators create jobs at an average cost of US$1. the cost per job created to the public sector through business incubators was approximately A$4. In Australia. a comparable control group) and hence accurately comparing like-with-like was also highlighted by the US Department of Commerce study.on benchmarking best practice. has an attempt been made to calculate net impacts by taking additionality. there is now a large amount of research on business incubators. too. However. Centre for 22 Strategy & Evaluation Services . the use of control groups) whilst others are of a more practical nature and relate to data collection problems (e. Benchmarking Initiatives As the previous section has shown. there are of course many complications in assessing the impact of business incubators. Some of these are purely methodological (e. there has been relatively little emphasis – explicitly at least . The ‘post incubation’ dimension. another 25 jobs will be created indirectly in the local community. and to calculate the local employment impact. 29 For example. 28 In the USA. whereas other job creation measures supported by public sector policies often cost upwards of US$10. This is despite the fact that such research could shed valuable light on the wider and longerterm impact of incubators. Likewise the evaluation of Aston Science Park in the UK came to broadly similar conclusions regarding the ratio between direct and indirect jobs.e.Benchmarking of Business Incubators Section other studies. the 1996 report Business Incubation in Australia: Best Practice Standards and an Industry Profile by the Australia and New Zealand Association of Business Incubators (ANZABI) found that on average. the types of clients of business incubators were of higher value-added than ordinary new business start-ups. The researchers also found that the average cost per job created fell over time.100. This tallies with research conducted in Michigan which identified a similar percentage (84%) of ‘graduate’ companies remaining within the local business community.

There are a large number of possible approaches.g. types of tenant firms) does not in itself explain why some incubators appear to perform better than others. The aim is not only to provide information on incubator activities but to also provide a ‘route map’ that can be used by managers to improve performance. Whilst existing surveys provide detailed information on incubator features and operations.’ A key question is of course what sort of criteria should be used to assess incubator performance. 30 Rustam Lalkaka ‘Approaches to Benchmarking of Business Incubators’. this information (e. and make the needed transition from the first generation mode (essentially subsidized space and shared facilities). with the prospective of achieving high-level of sustainability after the initial 3 or 4 years of operation). Additional. more in-depth research is therefore needed to explain differences and how incubators that are under-performing against benchmarks can develop their operations so that they can achieve best practice standards. towards a more relevant and dynamic operating model (intensive services and networking. based on presentations made at Conferences in Trieste/Italy in December 2000 and in Bangalore /India in January 2001. Lalkaka30 explains the nature of benchmarking as being to: ‘Assist management to progressively up-grade its performance. number of incubator units. Centre for 23 Strategy & Evaluation Services .Benchmarking of Business Incubators Section The first step in a benchmarking exercise is to use performance indicators (preferably ones that are quantifiable) to highlight differences between incubator operations and to help define best practice. In the next section we explain the approach developed for this project. attribute by attribute. It can be seen therefore that benchmarking has an essentially practical purpose. occupancy rates.

we also benefited from several expert’s inputs. Step 4 involved a number of separate strands (two surveys.2 Business Incubator Model (Step 1) The way in which business incubators operate can be depicted in terms of a simple input-output model: Centre for 24 Strategy & Evaluation Services .Benchmarking of Business Incubators Appendix This section summarises the methodological framework used to benchmark business incubators. and contact with national associations to obtain data from other surveys undertaken by them) and is more fully described in Section 3. 3. Last but not least. The survey data was used to determine where incubators stand in relation to the various benchmark indicators. three workshops with the incubator ‘Managers Group’ have also been held to help guide the design of the benchmarking framework and CSES’s research. Step 5 – Best Practice Guidance: Based on the earlier steps and analysis. inputs by the Managers Group and CSES’s fieldwork. it is helpful to summarise the overall approach: Figure 4: Key Steps in Development of Benchmarking Methodology Step 1 – Model: A generic business incubator model was developed setting out basic functions and operating procedures. Step 3 – Performance Drivers: In addition. faceto-face interviews with incubator managers. This model is based on the literature review.4. During the course of the project. the model highlights the ‘key performance drivers’ that will influence the extent to which incubators achieve best practice benchmarks. 3. the final section of this report then suggests key actions that should be taken in setting up and operating business incubators. These drivers fall under three headings Step 4 – Business Incubator Data: Two surveys were carried out by CSES: the first focused on incubators themselves while the second involved obtaining feedback from client companies. and companies. partner organisations. and more specifically the proposed business incubator benchmarking framework. The first three steps were undertaken during Phase 1 of the project although modifications were subsequently made to reflect feedback from discussions with incubator managers. was set out in the interim report.1 Overall Approach A detailed description of the methodology that has been adopted for this project. However. Step 2 – Best Practice Issues: The model defines a number of ‘key best practice issues’ that provide the framework required to define benchmarking indicators. We start by outlining the overall approach and then explain each methodological step. These are subdivided into ‘headline’ and ‘operational’ indicators.

and projects put forward by entrepreneurs. Figure 5 sets out the model is schematic format.Benchmarking of Business Incubators Appendix Inputs – these mainly consist of the inputs made by stakeholders (e.g. Processes – the various inputs are brought together in the business incubation process through the provision of incubator space and other services to companies. providing finance). Figure 5: Business Incubator Model Regional Dimension Effectiveness Efficiency Relevance Finance Stakeholder objectives Management skills Projects Utility Sustainability Inputs Process Outputs Impacts Additionality Displacement Indirect Effects Net Impacts Target market Admission criteria Incubation Exit criteria Graduation Pre incubation Training Business advice Financial support Technology support After care Physical Space Networking Operational Dimension Centre for 25 Strategy & Evaluation Services . Outputs – successful companies graduate with positive job and wealth creation impacts on local economies. management resources. combining the incubator input-output dimension (shown in the bottom half of the diagram) together with key best practice issues (shown in the top half of the diagram).

typically involving a combination of training and business planning. e. and technology support. contact will be retained with ‘graduate’ companies through the provision of after-care services and/or on-going networking. some entrepreneurs may be encouraged to go through a ‘pre-incubation’ process. 3. Some firms will of course leave sooner if they grow rapidly and require more space than the incubator can provide. large companies) constitute the other basic features of the ‘package’. A key feature of incubators is the limited duration of assistance with exit criteria typically specifying that firms should ‘graduate’ after a fixed period of time (e. The provision of incubator units and networking (internally between tenants and externally with other organisations.e. in many cases. five years). After a more detailed assessment. before they gain admission to the incubator. i.3 Best Practice Issues (Step 2) In Figure 5. The incubation process itself typically brings together three categories of business support services – training.g. However. Effectiveness – the extent to which the outcomes demonstrate that specific objectives are being achieved.Benchmarking of Business Incubators Appendix Taking the operational dimension. projects with a particular technology focus).g. financial support (either from an incubator’s own sources or from external providers. universities. projects are identified that meet the criteria used to define the incubator’s broad target market (e. value for money. linked to this.g. Sustainability – the sustainability of operations and durability of the outcomes being achieved. Centre for 26 Strategy & Evaluation Services . the key best practice issues (shown in the top half of the diagram) are defined as follows: Efficiency – the relationship between financial inputs and outcomes and. financial institutions). Utility – the extent to which services provided to client companies meets their needs. advice on business issues. The other dimension of the model shown in Figure 5 – key best practice issues – is examined below under Step 2 of the methodology. Relevance – the extent to which objectives/outcomes promote broader policy objectives.

27 Centre for Strategy & Evaluation Services . extent to which operating costs are covered by income).Benchmarking of Business Incubators Appendix These are the standard criteria used by the European Commission to assess the performance of expenditure programmes and schemes.g. Table 4: Definition of Best Practice Issues Criteria Relevance Inputs and Processes Incubator mission and strategy and relevance to enterprise and regional development priorities (qualitative) Financial inputs. and extent to which incubator promotes new start-ups in sectors of local economy with long-term job and wealth creation potential.g. retention of graduates in local area. survival and graduation rates) Occupancy rates and take up of incubator support services Financial sustainability of incubator (e. cost per successful business start up. Efficiency Effectiveness Utility Sustainability 31 The European Commission’s criteria are set out in a publication ‘Interim and Ex Post Evaluation of EU Expenditure Programmes’ (1997) which in turn draws on best practice in the assessment of public initiatives from Member States. Cost effectiveness of outputs (e. Extent to which incubator achieves key operational targets set out in business plan (e.g. level of demand for incubator space and services. operating procedures and unit cost of providing incubator facilities and services to client companies. cost per gross/net job created). Extent to which incubator achieves targets with regard to enterprise and wider regional development impacts (e.31 Tables 4 and 5 on the next page summarises how the various criteria might be interpreted in context of defining business incubator best practice issues. job and wealth creation) Extent to which incubator services meet client needs and contribute to performance Graduation rates.g. incubator charges compared with market rates Outcomes Extent to which incubator tenant characteristics match definition of target market and admission criteria (qualitative).

job quality Graduation rate – percentage of tenants leaving incubator each year Growth sectors – proportion of graduates in growth sectors Retention rate – percentage of graduate companies remaining in local area Note: Total investment defined as incubator capital investment plus operating costs to date less income from incubator services and other non-grant revenue. proportion of jobs filled by local people. value added of business activities Job creation – number (and type) of jobs per tenant firm and annual growth rates. contribution of incubator to firms’ development (additionality) Wealth creation – Average turnover of tenant firms and average annual growth rates. Centre for 28 Strategy & Evaluation Services . average time in incubator Client satisfaction – percentage of firms indicating that incubator services meet their needs.Benchmarking of Business Incubators Appendix Table 5: Definition of Best Practice Indicators Criteria Efficiency Inputs and Processes Start-up time – length of time required to establish incubator Incubator investment cost – total investment/ sq m of incubator space Incubator operating personnel operating cost costs/number – of Outcomes Cost of incubator units – total investment/sq meter of space Cost per start-up – investment/number of start ups total Cost per graduate – total investment/number of graduates Cost per (gross/net) job – total investment/ jobs in tenant and recent graduate firms Financial leverage – ratio of public to private sector funding Income generation – proportion of income from client charges Criteria Utility Inputs and Processes Occupancy rate – percentage of incubator space let to companies Incubator service utilisation rate – percentage of companies using incubator support services Response rate to client surveys – percentage of tenants responding to client satisfaction surveys Effectiveness Start up rate – number/percentage of admissions leading to start-ups Start up time – length of time required to start up new businesses Survival rate – number/percentage of start ups still trading after 3 years Sustainability Financial breakeven – income less operating costs Market rates – level of discount/premium for incubator space/services compared with local market rates Outcomes Incubator turnover – number of firms entering/leaving incubator.

likewise. Start up and operating costs/source of funding – there are a large number of possible headline and operational indicators relating to incubator finance (e. Operational indicators include the length of time tenants remain in the incubator. There are a number of operational indicators (see below). there are a large number of possible operational indicators. Management and Promotion 5. a technology centre will typically have more than 75% of its clients engaged in knowledge-intensive activities) whilst information on the performance of tenants provides the basis for assessing incubator effectiveness. business advice. a key factor here is the extent to which incubators obtain feedback from their clients on the services being provided to them. 4. 3. 29 Centre for 2. These ‘high level’ themes were defined by the European Commission in its terms of reference for the project and. Range and pricing of business support services – the provision of a comprehensive range of business support services is a defining characteristics of the incubator model. is critical to successful incubator operations and the wider role of incubators in contributing to regional strategies on competitiveness and technology transfer. Number and type of client companies – the number and type of tenants provides a basis for classifying incubators (e. Strategy & Evaluation Services . 9. were highlighted by participants of the 1998 Helsinki workshop as key issues. management. the existence of formal admission and exit criteria are a defining characteristic of the incubator model and important in ensuring a turnover of tenant companies.g. Table 6: Performance Drivers .4 Performance Drivers (Step 3) There are a number of factors that will influence the extent to which incubators are able to achieve best practice. 8. and promotion. if linked to incubator outcomes. before that. More fundamentally. and financing of companies. Incubator occupancy rates and turnover – occupancy rates provide an indication of how successfully incubators attract clients and is also for many incubators a key to financial viability. the quality of the management team is clearly a major determinant of incubator performance. Number and type of incubator units – this together with the location and type of incubator premises largely determines start-up costs and the capacity of an incubator to operate on a costeffective basis and achieve economies of scale. Table 4 on the next page breaks down these broad themes into a number more specific ‘headline’ and ‘operational’ indicators. Criteria used to monitor incubator performance – in addition to a formal set of performance indicators and quality standards. 6. Key Incubator Functions. In each case. Number and type of incubator personnel – the ratio of incubator personnel to clients is another key indicator of efficiency. in particular the backing of a broad public-private partnership. These can be grouped into four categories – entrepreneurship training. Evaluation of incubator services and impacts.g. Key incubator functions. technology and innovation support. extent to which breakeven is achieved) and. 7. Admission and exist criteria – again. this enables efficiency and value for money issues to be assessed.Key Headline and Operational Indicators Setting Up and Operating Incubators 1. Number and type of stakeholders – the role of stakeholders.Benchmarking of Business Incubators Appendix 3. The turnover of tenants is a guide to operating efficiently. These factors relate to: Setting up and operating incubators.

CSES carried out interviews with incubators and in each case a small sample of their tenants. In the context of this project. Number of graduates/retention in local area – monitoring the destination of graduates is a key to understanding the extent to which incubators achieve sustainable impacts that benefit the areas where they are located. These are not listed in full here but considered in Section 4 containing an analysis of business incubator data. ‘Operational’ indicators are the larger number (40) of specific indicators relating to business incubator operating context. 11 12. The main body of the analysis is based on a total sample of 78 completed questionnaires returned directly to CSES. 3. Performance of tenants. data was contributed by a number of national associations. structures and processes.e. This was distributed to a more limited number of incubators with information from 71 companies being returned to CSES. the factors that help explain why some incubators achieve better outcomes than others. Value added of incubator operations – benchmarking the performance of incubators needs to be based on an assessment of the value added they demonstrate. Where appropriate. i. the extent to which the performance of client companies can be attributed to the support obtained from an incubator. i. Company survey – a separate questionnaire was devised for tenant companies. Table 7: Breakdown of EU Sample (by Country) Country Austria Belgium Denmark Finland France Centre for Managers Group 1 1 1 1 1 CSES Survey 3 1 0 13 21 Other Sources 0 0 0 0 0 Total 4 2 1 14 22 30 Strategy & Evaluation Services . ‘headline’ indicators have been defined as being a small number (12) of key indicators that relate primarily to the outcomes achieved by business incubators.e. and the NBIA (52) where comparisons are made between the performance of incubators in Europe and the USA. Tables 7 and 8 provide a breakdown of the incubator sample – first by country and then by type of incubator. Interview programme – to support the survey work. In addition.Benchmarking of Business Incubators Appendix Evaluation of Incubator Services and Impacts 10.5 Business Incubator Data (Step 4) Data used to quantify the headline and operational benchmarks has been collected through three methods: Incubator survey – a questionnaire was sent by CSES to business incubators throughout the EU with a positive response from 78. job and wealth creation – the failure/success rate of incubator tenants is widely used as a short-term measure of their performance whilst job and wealth creation indicators provide an insight to longer term impacts. the analysis also incorporates data from the UKBI (46 questionnaires).

3 100.2 33.Benchmarking of Business Incubators Appendix Germany 1 0 Greece 1 0 Ireland 1 2 Italy 1 12 Netherlands 0 0 Portugal 1 1 Spain 1 5 Sweden 1 6 United Kingdom 1 0 TOTAL 13 64 Source: CSES analysis of sample.) Other Type Total Source: CSES analysis of sample. 0 0 0 0 0 0 0 0 46 46 1 1 3 13 0 2 6 7 47 123 Table 8: Breakdown of EU Sample (by Incubator Type) Typology of Incubators Business & Innovation Centre Science/Technology Park Incubator Specialised Incubator (e.3 12.2 29. Centre for 31 Strategy & Evaluation Services . the difficulties in obtaining data from certain countries. means that there is limited scope for cross-country comparisons. Arguably this type of analysis is in any case less relevant than comparing different types of incubators. and the relatively small overall sample size involved. Note does not include UKBI data. the varying response rates across Member States.g rural etc. UKBI data Number 31 41 15 36 123 Percentage 25. and in the following section considerable emphasis is placed on this approach.0 Whilst the data allows for a robust analysis at an EU level.